SUPPLY CHAIN MANAGEMENT AND FOURTH PARTY LOGISTICS

SUPPLY CHAIN MANAGEMENT AND FOURTH PARTY LOGISTICS

Introduction

1.       Supply chain, on material level is defined as flow of materials through procurement, manufacture, distribution, exploitation and disposal while on human level it is an entity of people organisation as structures and systems delivering the desired value and goods.  Supply chain management is undergoing a paradigm change in aligning its activities, measures and customer focus.  No longer does supply chain management operate as mutually exclusive teams with separate sets of matrix in managing their activities.  These days successful organisations use a master strategy of “Vital three” elements – people, process and enabling technology, in addressing future growth, organisation transformation and organisation resource planning enabling initiatives.  This is more binding in view of the fact that today organisations operate in an environment of end to end management, collaborations, vision and working for the good of the customer, stockholders and society and emphasizes long term cooperative growth. Some speak of supply chain management as “the final frontier” underscoring the importance of attacking the cost of process inefficiencies resulting from disjointed org activities and going beyond the traditional approaches.

Logistics and Supply Chain Management

2.       Logistics is the process of planning, implementing and controlling the efficient and effective flow and storage of raw material, in process inventory, finished goods, services and related information right from the point of origin to the point of consumption in order to satisfy customer requirements.  It is also defined as time related positioning of resources.  The whole concentration of logistics is based upon the following:-

(a)          Right place.

(b)          Right time.

(c)          Right quantity.

(d)          Right quality.

(e)          Right price.

(f)           Right condition.

(g)          Right customer.

3.       Logistics activities as part of supply chain management comprises of the following:-

(a)          Planning and control

(b)          Procurement and manufacture

(c)          Transportation

(d)          Material handling

(e)          Storage

(f)           Supply and distribution

(g)          Product management incl improvement 

4.       The prerequisite infrastructure required to provide quality logistics are:-

(a)          Land and warehouse

(b)          Trained manpower

(c)          Material Handling Equipment

(d)          Hardware and software

(e)          Transportation network

(f)           Reliable vendors

(g)          Consultants

5.       Therefore it can be seen that logistics forms an important element of supply chain management which is interplay of all the functions and integrates all the assets, people and activities in an organisation.  Logistics is also different from transportation in that while transportation is only physical move of goods as well as picking up of stores as per customer indents and delivering to the ultimate consignee, logistics encompasses several activities related to supply chain management.  Thus transportation is only an important element in the entire chain.

6.       A well designed supply chain is expected to support the strategic objective of:-

(a)          Reduced costs

(b)          Shorter lead times

(c)          Better quality

(d)          Flexibility

(e)          Enhanced value added service

(f)           Better availability and reliability

Vital Three: A New Paradigm

7.       The best configuration varies from org to org but in all cases the architecture of the chain would include the three vital elements – people, process and technology.

8.       Effective supply chain management involves breaking down functional silos and elimination of time through speed and process innovation.  This very basic approach hinges on an analysis surrounding the vital three factors of people, process and enabling technology.  Wrapping the technology around a well skilled team and simplified processes will yield the greatest technological advantages and the best results with long term benefits.  It enables operations to perform with greater efficiency as well as at unprecedented levels of interactivity.

9.       To achieve this, customer expectations must be understood and met.  A critical element in the supply chain is the presence of front end teams of operating interactively as one unit or the “face to the customer”.  The customer expects transactional ease and perfection in indent completion and quality.  A redefined customer relationship in any org will have a direct correlation to the achievements and end results.

10.     One such important concept to ensure long term sustainability and growth is the use of digital networks which use new communication and processing technology and permit online sharing of information across the organisation and with the environment.  This creates a true end to end interaction.

11.     Another fundamentally important aspect is of portfolio management, which sorts out the one sided expectations that may result from a weakness in the organisation’s core competencies, unrealistic customer expectations or other factors.  It challenges all aspects, segments and needs of the customer portfolio and examines whether the organisation can meet the customer’s requirements.  Knowledge of what can, can’t or are willing to do is a powerful criterion for positioning the organisation on path of growth.

Fourth Party Logistics

12.     In today’s scenario there has been an unprecedented increase in customer demand for better service and on time deliveries at reduced costs.  This has put extra pressure on the area of logistics and supply chain management.  This expectation has been further augmented by proliferation of IT based technology and the emergence of latest phenomenon called convergence.  To meet these demands the general trend has been to outsource the service providers.  Now organisations are outsourcing their entire set of supply chain process from a single organisation which will assess, design, make and run integrated comprehensive supply chain solutions.  This is called the fourth party logistics.

13.     Fourth party logistics provider is a supply chain integrator that assembles and manages the resources, capabilities, and the technology of its own organisation with those complementary service providers to deliver a comprehensive supply chain solution to the customer.  A standard fourth party logistics chain solution involves four steps:-

(a)      Reinvention   Align overall strategy with supply chain strategy to re-engineer the supply chain.

(b)      Transformation   Coordination of specific supply chain functions such as supply, operation planning, distribution management, procurement strategy, customer and supply chain technology with the aid of process and organizational changes and IT etc. as applicable.

(c)      Implementation   Based on recommendations made earlier taking care of human resource dimension.

(d)     Execution.  Responsibilities incl operation and supply chain functions, besides transport management and warehousing operations logistics.

Conclusion

14.     The world is changing rapidly with the focus on the key common denominator – the customer satisfaction.  An effective supply chain management understands the importance of the three vital factors of people, process and technology.  Indeed, the new age mantra for quality logistics, is adherence to successful supply chain management, using fourth party logistics, for achieving operational excellence.